Surety Bond Blog

The term “licensed & bonded” is frequently used for marketing purposes in an attempt to make a company’s potential clients feel safe doing business with them. In fact, the phrase itself is all your average person knows about the surety bond industry. In this article, we will learn what it means to be “licensed & bonded. More importantly, we will learn how to become licensed and bonded.

What does it mean to be “licensed & bonded”?
Most people are aware what it means to be licensed. However, we should reiterate the purpose of a license. A license means that you have learned rules, regulations, and practices that the governing body requires you to be familiar with. Furthermore, it means that the licensee is capable of doing the work at hand. The license ensures you do the right thing, you passed the test and therefore you understand the difference between right and wrong and are held accountable for it. Not following the rules could result in loss of the license and possibly the ability to work in your particular industry in a specific area, a state, or even the entire country.

If a license does all of the above, you might ask yourself, why is there a need to be bonded? The license assures a client that the licensee knows the rules, but a bond guarantees that they will follow them. That’s right, in the event that the licensee breaks the rules of the said prevailing governing body, a claim can be filed against the bond to recoup losses for those negatively effected.

How do I become “licensed & bonded”?
You will have to do some legwork to find out who regulates the license you are looking to obtain. You will want to ask the licensing department what their requirements for obtain a license are to ensure you can meet all of their standards (Also see: How To Become Bonded). Some common requirements include, but are not limited to: passing a test, meeting certain financial requirements, industry experience, clean criminal records, and of course, a surety bond. I can not comment too much on licensing requirements, as they vary greatly depending on occupation and the location of where you are planning on operating. Fortunately, I can go into great detail about getting bonded! As stated above, you are going to want to make certain you can meet all of the requirements to qualify for a license. This is extremely important, as most bonding companies will not do pro-rated returns on cancellations of first year bonds. To get bonded, you will need to find a bond producer (also known as a bond agent). Just as in any profession, the level of competence varies greatly. If you are in need of a bond producer, you should read our article What Makes A Good Surety Bond Producer.

Be sure to give our agency a chance at wowing you with our competitive rates, fast service, and expertise in the field. We are the first and only agency to date that offers true online surety bond approvals at no charge. You can obtain a 100% free quote with no obligations by visiting our applying now.

What if I don’t need a bond for my license?
Some licensed professions do not require you to post a bond. Clearly this is a bad idea for public interests, as there is nothing to stop a licensee from breaking the rules, and even worse no guarantee that those effected will be compensated in any way. Many licensees ask us if we can bond them to make their clients feel more comfortable. Unfortunately, it is an impossibility, as a bond is a three-party agreement and some governing agency must require of you. Otherwise, the bond is not guaranteeing any specific rules and regulations…and a bond that isn’t guaranteeing anything doesn’t do any good other than providing a false sense of security.

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Each bonding company will set guidelines for qualification and many bonding companies have varied methods of determining if you qualify. Most of all, they agree that the applicant must be reputable and have a good record of performance. After all, a surety bond is a guarantee of performance! If a surety is willing to back up a contractor, they must be certain that the risk is minimal. The underwriters’ primary mission is to provide a guarantee of reliable service. The evaluation from any bonding company consists of four components: financial stability, integrity, longevity and capacity, which we will further discuss.

Financial Stability:
While this is considered the biggest component, if all other components are favorable, this should be easy to attain. Sureties are looking for financial statements to picture how your business operates. The statements must be well organized, preferably by a Certified Public Accountant (CPA) and clearly defined. Aging should be 90 days on the average and a good cash flow is required. Your credit history will be evaluated along with the history you have with your vendors and subcontractors. You must have a good relationship with your banker as well. These criteria and your capitol assets will determine your net worth.

Integrity:
You must show that you are respected in your industry and are worthy of obtaining a surety bond. Your business contacts must give you high recommendations to prove that you are in good character. Contacts such as customers, suppliers and even employees play a vital role in evaluating your company’s integrity. A bonding company must place their faith in you; and satisfying their concerns of your reputation is required prior to writing your bond.

Organization is a key element when assuring the integrity of your company. Any well-run business also is very organized from entry-level personnel to chief officers. Record keeping, management, accounting and account management will be evaluated as part of this process.

Longevity:
A surety obviously wants to see that you have been in business for a long time. What is more important are the mechanics of how you have survived thus far. How long have your managers and foremen been in tact? What kind of employment turn over do you have? Is it above or below the industrial average? What is your business plan? What details (employee stock options, retirement, investments) do you have to back up your plan? Will your company continue to perform after you leave? Basically, if you can provide evidence that your company will still be around after you die or retire, the bonding company is satisfied.

Capacity:
A smart business knows his or her limitations. Steady growth is positively a key element to the success of your company. A surety is keen to observe the “too much; too fast” syndrome. If the surety notices that you have taken on more work than you are capable, they will become nervous and may decline your bond application. If you are profitable and can stay the course of your business plan, the bonding company will notice that you have good discipline and are not “greedy” in your method of doing business. If you are considering expanding, be cautious about spending beyond your means, as this could be disastrous not only to your qualification but your business as a whole.

If a surety is satisfied after evaluation of these components, they will decide not only if you qualify but also for what dollar amount. You may be approved with limitations depending on the outcome of your evaluation however; some bonding companies will either approve or decline your bond amount for which you applied. There are circumstances where the surety will suggest bonding for a specific job as opposed to your company as an entity if they feel a high risk is involved. This will keep your premiums to a minimum until you are capable of obtaining larger bonds. After you prove your worth, they may extend or add more bonding capacity to your account.

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